EUR/ZAR Exchange Rate Sinks as US-China Trade Deal Hopes Improve
The Euro South African Rand (EUR/ZAR) exchange rate fell by 0.5% today and is currently trading around R16.2817 on the interbank market.
The South African Rand (ZAR) rose against the Euro (EUR) on increased risk-appetite as bets rise on the US Federal Reserve’s rate cuts.
As the South African economy relies heavily on trade with China – its closest trade partner – hopes have risen that the US-China trade war could come to a positive conclusion by the end of this week.
US President Donald Trump and his Chinese counterpart, Xi Jinping, are due to meet at G20 in Osaka later on this week, and this has boosted risk-appetite as hopes rise on a possible trade deal.
Zhu Feng, a Professor of International Relations at Nanjing University, said:
‘The leaders are expected to show a rational and cooperative attitude when they meet again and agree to restart suspended trade talks.’
He added a note of caution, however:
‘It remains to be seen whether they have the political will and wisdom to settle their differences which are rooted in entrenched domestic politics in both countries that goes far beyond trade rifts.’
EUR/ZAR Exchange Rate Decreases as French Business Confidence Dwindles
The Euro, meanwhile, fell following the publication of the French business climate figures for June, which fell to 102.
Now that the second-largest economy within the Eurozone followed suit with the first, Germany, –whose business confidence hit the ‘doldrums’ yesterday – this has caused single currency traders to become increasingly skittish.
The Eurozone’s weakening growth and inflation has also proved a drag on the Euro.
Carsten Brzeski and Inga Fechner, Economists at ING, commented:
‘Without a strong recovery, it is difficult to escape the low growth, low inflation and subsequently low rates environment. An economic upturn could quickly be over and monetary policy might not have enough ammunition up its sleeve, with interest rates remaining stuck at the zero lower bound for years to come.’
Brexit concerns are also holding back the EUR/ZAR exchange rate, with UK Tory leadership favourite, Boris Johnson, returning to the spotlight today after generally keeping a low-key campaign.
He announced that the UK would leave the EU on 31 October ‘do or die’, which has been interpreted as either with a deal or a no-deal.
This has exacerbated fears that the UK could more likely face a chaotic exit, as Boris Johnson is well-known for taking a hard-Brexit stance within the Conservative Party.
EUR/ZAR Outlook: ZAR Could Edge Higher on Improve Risk-Appetite as US-China Engage in Trade Talks
Euro traders will be looking ahead to tomorrow’s printing of the German GfK Consumer Confidence Survey figures for July, which are expected to ease.
These will be followed by the French Consumer Confidence figures for June, and with any signs of falling, this could further see the single currency fall against many of its competitors.
South African Rand investors, meanwhile, will be keeping a close eye on global political and economic developments.
Any signs of a US-China trade deal could lend some much-needed risk-appetite, further bolstering the ZAR/EUR exchange rate.